Unofficial Notes from Hogan Lovells’ 2017 Winnik Forum

Executive Summary

Hogan Lovells hosted the 2017 Winnik Form, named after a late partner, Joel Winnik, on Thursday November 9th in their Washington, D.C. office. This year’s event was a half-day, focused on “Convergence and Competition.”

It’s seems trite to say, but the number of moving parts in the industry is remarkable considering 1) the consolidation of content providers and distributors; and 2) wireless substitution for voice (and increasingly video). Meanwhile, incumbent providers understandably complain the U.S. regulatory framework handicaps them with requirements not shared by new entrants.

As I considered many of the arguments, I had a heretical thought. I imagined if the conference participants were discussing a different industry – pharmaceutical companies and drug stores – as opposed to video content and distribution. Imagine an executive from Pfizer saying “We signed an exclusive agreement so that Lipitor [their highly prescribed cholesterol medication] will only be sold a CVS.” Then a RiteAid executive says, “Crestor [another common cholesterol medication] is exclusive to us, but we only sell it bundled with a cream for eczema [a skin condition].” It would be ridiculous and the market would demand change. And that’s exactly what’s happening in the video content market – lots of change is afoot. The current system does not serve consumers well and technology is allowing new business models – particularly involving the convergence of content production and distribution.

But the blending of content and distribution is raising questions about how mergers should be considered. The former vertical vs horizontal merger analysis is often hard to apply cleanly. Moreover, the rapid change of the industry makes it hard for economists, much less policy makers, to understand the potential for future market abuse or lack thereof. Additional issues involve the tensions between the realization that the market can only support a limited number of players and the desire for robust competition. This becomes especially difficult when it’s hard to clearly identify the competitors. Moreover, the industry is becoming increasingly global, and different countries have different regulatory policies.

The classic discussion played-out about whether distribution providers were capable of also creating content. Given industry trends and the erosion of barriers to entry in their core businesses, distribution companies have little option but to try. There seem to be few other options towards creating sustainable competitive advantages or barriers to entry. As a result of distribution companies needing to enter the content market, new portable technologies are making it easier for consumers to watch more content. As a result, we are seeing a massive growth of video content production, Netflix Originals being the best-known example.

Living-up to their reputation, the food and wine at the reception was excellent, even if last year’s outstanding crab cakes were missing 🙂